Two bidders have sought to buy Florida based Perry Ellis – one group of reported ‘insiders’ connected to management, and then an outside company, Randa.  Besides the inherent interest of multi-bidder scenarios for an investor considering appraisal, both sides of this – increasingly chippy – fight have invoked appraisal as part of promoting their bids.  It’s a curious development.

The Perry Ellis special committee, in announcing that it found the slightly lower priced management bid to be better invoked appraisal, writing that Randa’s bid would not have appraisal rights – as opposed to the management connected bid, which would.  Randa responded that Florida law allows appraisal in insider-related transactions, but not for transactions (like Randa’s bid, according to Randa) that do not involve insiders.  What’s odd about invoking appraisal in one’s assertion that a certain bid is better than another is that appraisal generally (and in Florida, does) require that one vote against, or at least not vote for the transaction.  In theory, yes, the insider connected bid here carries appraisal rights for those dissatisfied with the deal, as opposed to Randa’s (higher) bid which does not carry appraisal.  One might imagine, though, that an investor voting against the lower, management connected bid, would actually cite Randa’s bid as showing a higher value.  In effect – the policy reason why the insider bid carries appraisal rights is basically exactly what is occurring: to protect a minority shareholder from having to take a price lower than what a competing bidder would pay.  On the other hand, one can readily read the special committee statement as invoking appraisal in order to demonstrate that it considered factors – such as the remedies available to a minority, dissenting shareholder – even beyond the benefit to “yes” voters.

We’ve written before about Florida appraisal, and this deal shows that appraisal is, and remains, a potential remedy outside of Delaware.

While the vast majority of United States appraisal rights cases occur in Delaware, several other states — Florida among them — also recognize appraisal rights.  This past summer, a Florida appellate court affirmed a minority shareholder’s right to exercise appraisal rights when the company sought to redeem its shares.  In Omes v. Ultra Enterprises, Inc., 2017 WL 3611546 (Fla. Dist. Ct. App. Aug. 23, 2017), directors of Ultra Enterprises, which owns the intellectual property of the Ultra Music Festival, voted to redeem the shares of Alex Omes, one of Ultra’s co-founders, due to Omes’ self-dealing and competing personal businesses.  Ultra notified Omes of the board’s decision and his right to seek appraisal to determine the value of his shares.  Omes exercised his appraisal rights, rejecting Ultra’s valuation of $1,200 per share, and instead offering his own countervaluation of $111,111.11 per share.

After a bench trial, the trial court found that the appraisal process was properly invoked.  In a turnabout of the more conventional use of appraisal, the appellate court observed that a majority shareholder has a right to engage the appraisal process “to eliminate the rights of dissenting shareholders and put an end to corporate strife.” The court ultimately determined that Ultra’s valuation analysis was supported by competent, substantial evidence.  The case demonstrates that appraisal rights are indeed available in Florida, and we are continuing to watch out for additional rulings outside Delaware, as we posted about yesterday.